The era of cheap money in the U.S. is coming to an end. And the move by the U.S. Federal Reserve to start raising rates will have plenty of knockon effects, including on the Canadian dollar. A boost in rates by the Fed would have the effect of raising the value of the American currency, which would have a depressive effect on the loonie. But Paul Taylor, senior vice president and chief investment officer asset allocation with BMO Global Asset Management, told Financial Pipeline editor Malcolm Morrison that that would not be altogether a bad thing.
PT: A little bit of looney weakness relative to the U.S. dollar can be good in that it’s the natural stabilizer that allows Canadian product to be more attractive on world trade markets. So a little bit of, of the Canadian looney weakness relative to the U.S. dollar could be the jolt that we need here in Canada to offset oil weakness. But the other is that it could be too much and looking at things in a broader context. And if the U.S. dollar appreciates too sharply, then one of two things happen. One, is you get a reaction from, say for instance in certain emerging markets, where to protect capital, they have to raise domestic interest rates, which slows economic growth. So the other is if the dollar appreciates too quickly, this can effect U.S. corporate profits, which can kill the goose that laid the golden egg and U.S. economic growth can in fact falter and it’s the only engine of growth we have right now globally.